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Here's why Warren Buffett is betting big on Paytm

Berkshire Hathway and its subsidiaries so far have invested in sectors including manufacturing, insurance, utilities and energy, freight rail transport, finance and retail.

August 31, 2018 / 05:39 PM IST

The massive investment by Warren Buffett's Berkshire Hathway in Paytm that follows on the heels of Walmart acquiring majority stake in domestic rival Flipkart, brings a fresh wave of confidence in the Indian e-tailer space. The move by the American investor seems to be an attempt to test Indian waters again before making a fully fledged move.

With this investment, Berkshire enters the lucrative mobile payments space in India. The company and its subsidiaries so far have invested in sectors including manufacturing, insurance, utilities and energy, freight rail transport, finance and retail.

On August 28, Paytm confirmed the deal, but did not disclose its size. However, a source close to the development, which has been in the works since February said it is likely to be in the range of $300-350 million (over Rs 2,100 crore).

Paytm will utilise this money in expanding its payments network and building financial services.


"We should not go basis what is the investment size but the most important message is that Warren Buffet has never been bullish about the Indian market even when all the big investors were coming to India or making investments. So if now he is inclined to make this sort of an investment in India, it is more like testing the Indian waters," said Atul Pandey, partner at law firm Khaitan.

"It should also open doors for other e-commerce retailers in India. Warren Buffet's confidence in India will make it easier for other firms to attract different foreign investors with big cheques," he added.

One97 Communications, the parent firm of Paytm, last raised $1.4 billion from Japan-based SoftBank at a valuation of $8 billion. In January, the company's valuation rose to $10 billion, following a secondary stake sale, where some existing and former employees sold part of their shares to new investors. That round was expected to have further increased the valuation of the Noida-based company to $12 billion.

"It is a good start but is also an experimental bet. It isn't yet clear if it is a long term strategy or more like a short term tactical move. However it is definitely a good news for startups since it opens up one more large pool of capital," said Vinod Murali, managing partner, Alteria Capital Advisors.

"However as an economy we are doing very well. So the India story is bright right now. All of this is a validation for foreign investors who are sitting on the fence," he added.

India's online retail market is expected to witness a huge growth in the coming years. Earlier this month, Flipkart sold majority stake to Walmart for a valuation of around $21 billion. Besides Flipkart, top five sectors including consumer, retail and fin-tech raised around $3.6 billion in venture capital funding just in the first half of 2018.

According to a recent research by eMarketer, the size of India's e-commerce industry would be around $32 billion by end-2018. This is expected to witness a whopping 120 percent growth by 2022 at $71 billion.

Flipkart is leading the online retail market race and is closely followed by Amazon; Paytm is next in the fray with offerings like payments, e-commerce, ticketing, travel, among others. Paytm was one of the biggest beneficiaries of the demonetisation drive initiated by Prime Minister Narendra Modi in 2016.

Paytm has a payments bank licence from Reserve Bank of India (RBI) unlike its immediate competitors in the venture capital funded sector.

Besides SoftBank, Paytm has Ant Financial, Alibaba and SAIF Partners on its board.

Berkshire had last ventured into India in 2011 in the non-life insurance sector by tying up with Bajaj Allianz as a corporate agent. The partnership broke in 2013.

Priyanka Sahay
Sabahat Contractor
first published: Aug 28, 2018 06:14 pm

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